Speculation from a NYC venture capitalist

GaaS – The Rising World of Games as a Service

In the enterprise world, since the advent of Salesforce.com in the late 90s, we have heard about this notion of software delivered from the cloud and offered as a shared, multi-tenant service to customers, with the web browser acting as the universal interface to access the application.Over the past decade, SaaS based applications have become mainstream, and are rapidly being adopted by small and medium sized enterprises globally because of its alignment of service delivery and value.Interestingly, the same concepts are now beginning to affect the gaming industry.

In the old world of gaming, there were large hardware manufacturers who built specialized consoles to run and execute CD and DVD based games.Game developers would create games that were stored on DVDs, and distributed through a vast retail infrastructure.The game would have a multi-year timeline, and the developers went off building a new version of the game, which would completely replace the old DVD (much like writing new versions of licensed software).Over time, those consoles introduced networking connectivity, and services like Xbox Live were launched.You still bought the DVD as a starting point, but game updates became available online and you could even download new games in entirety over the network.

Today, a new era is emerging.It started with the incredible success of World of Warcraft, which showed that a game could be delivered over the web, onto a PC, and create a “services” style game that continually grew and upgraded.There are over 11.5 million subscribers to WoW, nearly half of which pay $15/month to play the game in North America and Europe. While the premium subscription model has proven to be wildly successful in North America and Europe, over 5 million WoW players in China continue to play via prepaid game cards at a rate of $0.07/hour. As most Massive Multiplayer Online games (MMOGs) in China are still played within PC cafes, the primary revenue model continues to be through prepaid cards via a time-based pay to play model combined with in-game item sales through micro-transactions, the latter being another gaming trend that is fast gaining traction in western markets.

WoW’s success has led to a revolution in thinking game development and delivery.There are many examples of PC based games launching that are a single instance, multi-tenant, shared game application with a monthly subscription price that customers are rapidly adopting.Two recent examples include Lord of the Rings Online (developed by Turbine and published by Midway/Codemasters) and Warhammer Online (developed by Mythic and published by EA), two western MMOGs with that have attracted over 300k paying subscribers each paying $15/month to play those games. Additionally, after having great success in markets like South Korea and China, game publishers are now experimenting with new models that allow users to play games for free upfront, and buy virtual items and characters via micro-transactions and P2P trading within the games.Want to get the Penguin Micropet in GoPets?Pay $2.Want a level 80 character in Everquest 2 without investing weeks of gameplay?Pay $500.Companies like Nexon (publisher of Maple Story, Kart Rider and Crazy Arcade) in Korea and have generated hundreds of millions of dollars in annual revenue with this free to play, micro-transactions based model.

In addition, game content distribution is going through a massive shift.Platforms like Steam from Valve are changing how we think of buying and interacting with gaming content.Steam is a digital distribution and digital rights management platform that delivers gaming content directly to gamers via a web connected client. Steam allows gamers to purchase games and receive game patches and updates in an entirely digital manner. Steam offers both first party games from parent company Valve as well as titles from third party publishers, and currently offers over 350 games to 20 million registered users in 21 different languages.

Underlying this is a significant shift that will put pressure on the largest publishers of games, and create some great opportunities for creative destruction in the gaming industry.The highlights of this new “GaaS” based ecosystem will share many of the same attributes of the “SaaS” world we have seen thrive, and will have the following attributes:

Games will be sold and played over the Internet;

The game itself will be a shared instance, with foundational upgrades instantly being applied to all players;

Game titles will have “continuous” economics, as new levels, variations, and challenges can be dynamically inserted or purchased;

Free to play model will remove barriers to adoption and encourage initial and immediate game exploration;

Game publishers will have unprecedented ability to interact with their customers directly – measuring navigation and usage as one does the internet, creating unique 1:1 marketing experiences, and watch for dips or spikes in activity and modify the environment in response;

Game publishers will be able to collect real-time gameplay data to provide a better and more personalized gaming experience for gamers, leading to more accurate leveling, improved matchmaking and increased socialization within games.

At FirstMark Capital, we have invested in a number of companies that follow on these trends, and they are seeing tremendous success in the market.Riot Games is a session based MMO based on the very popular DotA community, whose game is entering beta and is already getting exciting user feedback.LiveGamer is an exchange for virtual goods, and has seen transaction volumes and activities rise as more and more publishers introduce virtual items into their economic stream.We have a number of other initiatives under way, but I believe this notion of GaaS will be an exciting one for the next few years.

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4 thoughts on “GaaS – The Rising World of Games as a Service”

That is right. When GinDis.com entered the gaming arena it was with the intention of bringing you only the very best and most exclusive games you can find online. GinDis.com offers you a roster of five games you will not find any where else. These are games that will test your tactical skills and war strategies. So if you are looking for War Games Free, you have come to the right place.

Great post! plaYce provides GaaS to gamers as well as Gaming Infrastructure as a Service to independent game developers. We just launched our beta at http://www.playce.com. I’d love to hear your thoughts! (Note – the website is temporary)

Wonderful post! You are definitely right on! I have some very close friends that got into WoW and ended up getting so drawn into it that they would forget about everything else. This new era of games via the internet will most definitely explode just like the social networks recently (MySpace, Facebook, etc.).

[…] Posted on May 7, 2009. Filed under: Industry Themes | Tags: digital media, gaming, GaaS, Halo3 | Though I don’t have time to be a hardcore gamer, I do dabble with a few to keep myself current with the state of the art in games, tools, infrastructure, and services. My experience last night validated an extensive post I did a few months back on the world of Games as a Service. […]